RRIF With Mortgage Investing
A registered retirement income fund or RRIF can be used in private lending for mortgages. In Canada, when you turn 71 you must convert your RRSP into an annuity, RRIF, or pay it out in a lump sum. The RRIF is very similar to an RRSP and you can still enjoy the benefit of having your investment earnings grow tax free and only have them taxed on receipt. The main difference is you can not contribute to the RRIF and you must pay yourself from it at prescribed intervals.
An analogy would be to consider the RRSP like a barrel you fill with water (or in this case money) and typically closed tap. The RRIF is the same barrel but it has a tap which is always open and constantly flowing with water out of it.
You can utilize your RRIF for mortgage lending through a self-directed RRIF and watch your portfolio grow tax deferred. The same investments which are eligible for an RRSP are available to your RRIF. This includes private lending through registered mortgage investments.
Starting the year after you establish your RRIF you must be paid out a minimum amount annually from your RRIF. The minimum amount is dependant on your age and can be calculated by your provider or trust company. EquityApproved.ca can help you with suggesting a compatible trust company to administer your RRIF and the private mortgage investment.
The minimum payout amounts are based on age. You can also base them on your spouse or common-law partners age which can be advantageous if they are younger than you and you want to keep the money in the RRIF longer with lower minimum withdrawl requirements. This is something that must be selected when creating your RRIF and cannot be changed once selected.
You must make the minimum annual payment out of the RRIF but you can take out more if you like. If you take out more than the minimum it will not count to any other year withdrawals. You will still have to take out the minimum amount the next year based on the age calculation.
RRIF is very flexible and you can have multiple RRIFs. You can set them up with different investment types and payout amounts. If you require a lump sum take out for a major expenditure that is available to you.
You retain control over your investment and retirement through self directed options. Private mortgage investments can be an excellent way to utilize your RRIF due to the higher than average returns. If you have a minimum withdrawal rate of 4% and earned 12% on a private mortgage loan, you still grew your RRIF by 8% tax free and earned a retirement income.
Unlike some other retirement investment vehicles, you are able to designate a beneficiary for your RRIF when passing.
Withdrawal of your RRIF makes it subject to withholding taxes by the plan administrator. In the same way an employer would hold back taxes on a paycheck, the administrator would do the same for your RRIF when making your payments.
We can help you utilize your RRIF for private mortgage home equity loan investments. Contact us to get set up and start recieving private lending opportunities!